Bank of America Corp. is making significant changes to its overdraft fee policies, as banks face increasing criticism and potential new laws around customer surcharges.

Starting Oct. 19, the Charlotte-based bank said Tuesday it will no longer charge overdraft fees if a customer's account is overdrawn by less than $10 per day. Previously, the bank charged a $10 fee if an account was overdrawn by less than $5 per day.

In addition, the bank said it will not charge overdraft fees on more than four instances per day. In the past, the cap was 10 per day. The fee stays at $35 per overdraft.

The bank also said that customers can visit a branch or call the bank to opt out of overdraft protection, meaning payments won't be made on their behalf if they don't have enough money in their accounts. The bank also plans more changes next year.

In a down economy, overdraft fees have become a particular sore point lately because customers can rack up big charges if they withdraw money at an ATM, write a check or use a debit card and don't have enough money in their account. With the proliferation of debit cards, in particular, they can rack up multiple fees in a short span of time.

The announcement comes a little more than a month after Brian Moynihan took charge of the bank's consumer banking unit, following a management shakeup. In an interview Tuesday, Moynihan said changes were already in the works but he pressed for them to be completed quickly.

“The economy kept getting tougher and tougher,” Moynihan said.
“Customers continued to be stretched more and more. We were watching how customers were being affected.”

Moynihan said the bank was driven by customer need, not legislative pressure. A bill in the U.S. House would require banks to inform customers that an ATM withdrawal or debit payment is about to put them into the negative. Senate Banking Committee Chairman Chris Dodd, D-Conn., has also said he is drawing up legislation.

Overdraft fees have been a major source of income for banks, especially at a time when they're struggling with rising loan losses.
Bank of America's deposits segment, which includes checking accounts and other services, collected $3.3 billion from all service charges in the first half of this year.

Moynihan declined to say how much income the bank might lose from the change. “If the customer gets the benefit, that's less fees for the company,” he said. “Long-term, it's in the best interest of the customer and the shareholder.”

Research firm Moebs Services has estimated the industry will make $38.5 billion from overdraft fees this year, up from $18 billion in 1999, partly because the average fee has climbed.

Mike Moebs, an economist and the CEO of Moebs Services, lauded Bank of America's announcement and said he hopes the bank will introduce more consumer-friendly initiatives in the next month or two. For example, he said, the bank could drop its overdraft fee of $35 for most transactions to the industry median of $26.

“I highly praise Bank of America, even if it's totally political,” Moebs said. “It's a huge step in the right direction.”

Bank of America, the nation's biggest bank, also said Tuesday it has more changes in the works starting in June 2010. The bank will introduce an annual limit on the number of times customers can overdraw their accounts when they make a purchase at a store.
Customers will be contacted when they near that limit. The bank will also allow customers to opt-out of overdraft capability when they open a new account.

Moynihan said the bank already warns customers of possible overdraft fees at the bank's own ATMs, but doesn't have the capability when customers make purchases at the retail point-of-sale. In the future, though, customers will be able to opt out of different aspects of overdraft protection, he said.

The bank said it has already increased its efforts to work with customers affected by the economy.
It also plans to roll out materials that it said clearly explain the terms of their accounts.

Moynihan, who joined the bank in the 2004 FleetBoston Financial Corp. merger, has remained in Boston since taking his new job, but he said he's in Charlotte nearly every week.

If he succeeds in his new position, he is seen as a possible successor to chief executive Ken Lewis, who is under legal and regulatory scrutiny for his Merrill Lynch & Co. acquisition. Moynihan declined to comment on CEO succession.